diff --git a/cmd/helm/helm.go b/cmd/helm/helm.go
index c6bfcdf22..2fdb00e7d 100644
--- a/cmd/helm/helm.go
+++ b/cmd/helm/helm.go
@@ -32,6 +32,7 @@ import (
 	"k8s.io/client-go/rest"
 	"k8s.io/kubernetes/pkg/client/clientset_generated/internalclientset"
 
+	"k8s.io/helm/cmd/helm/installer"
 	"k8s.io/helm/pkg/helm"
 	"k8s.io/helm/pkg/helm/helmpath"
 	"k8s.io/helm/pkg/helm/portforwarder"
@@ -56,10 +57,11 @@ var (
 )
 
 var (
-	helmHome        string
-	tillerHost      string
-	tillerNamespace string
-	kubeContext     string
+	helmHome         string
+	tillerHost       string
+	usesHostedTiller bool
+	tillerNamespace  string
+	kubeContext      string
 	// TODO refactor out this global var
 	tillerTunnel *kube.Tunnel
 )
@@ -182,14 +184,22 @@ func setupConnection(c *cobra.Command, args []string) error {
 			return err
 		}
 
-		tunnel, err := portforwarder.New(tillerNamespace, client, config)
-		if err != nil {
+		if externalName, err := installer.GetTillerExternalName(client, tillerNamespace); err != nil {
 			return err
-		}
-
-		tillerHost = fmt.Sprintf("localhost:%d", tunnel.Local)
-		if flagDebug {
-			fmt.Printf("Created tunnel using local port: '%d'\n", tunnel.Local)
+		} else if externalName != "" {
+			tillerHost = externalName
+			usesHostedTiller = true
+		} else {
+			tunnel, err := portforwarder.New(tillerNamespace, client, config)
+			if err != nil {
+				return err
+			}
+			tillerTunnel = tunnel
+
+			tillerHost = fmt.Sprintf("localhost:%d", tunnel.Local)
+			if flagDebug {
+				fmt.Printf("Created tunnel using local port: '%d'\n", tunnel.Local)
+			}
 		}
 	}
 
diff --git a/cmd/helm/init.go b/cmd/helm/init.go
index be3d05528..3f71ea2dd 100644
--- a/cmd/helm/init.go
+++ b/cmd/helm/init.go
@@ -236,10 +236,16 @@ func (i *initCmd) run() error {
 				return fmt.Errorf("error installing: %s", err)
 			}
 			if i.upgrade {
-				if err := installer.Upgrade(i.kubeClient, &i.opts); err != nil {
-					return fmt.Errorf("error when upgrading: %s", err)
+				if externalName, err := installer.GetTillerExternalName(i.kubeClient, i.opts.Namespace); err != nil {
+					return fmt.Errorf("error detecting tiller mode: %s", err)
+				} else if externalName != "" {
+					fmt.Fprintf(i.out, "\nThis cluster uses hosted Tiller (the helm server side component) %v. Contact cluster operators regarding upgrading Tiller.\n", externalName)
+				} else {
+					if err := installer.Upgrade(i.kubeClient, &i.opts); err != nil {
+						return fmt.Errorf("error when upgrading: %s", err)
+					}
+					fmt.Fprintln(i.out, "\nTiller (the helm server side component) has been upgraded to the current version.")
 				}
-				fmt.Fprintln(i.out, "\nTiller (the helm server side component) has been upgraded to the current version.")
 			} else {
 				fmt.Fprintln(i.out, "Warning: Tiller is already installed in the cluster.\n"+
 					"(Use --client-only to suppress this message, or --upgrade to upgrade Tiller to the current version.)")
diff --git a/cmd/helm/init_test.go b/cmd/helm/init_test.go
index f6f93fed9..4715e3c1c 100644
--- a/cmd/helm/init_test.go
+++ b/cmd/helm/init_test.go
@@ -58,11 +58,11 @@ func TestInitCmd(t *testing.T) {
 	if len(actions) != 2 {
 		t.Errorf("Expected 2 actions, got %d", len(actions))
 	}
-	if !actions[0].Matches("create", "deployments") {
-		t.Errorf("unexpected action: %v, expected create deployment", actions[0])
+	if !actions[0].Matches("create", "services") {
+		t.Errorf("unexpected action: %v, expected create service", actions[0])
 	}
-	if !actions[1].Matches("create", "services") {
-		t.Errorf("unexpected action: %v, expected create service", actions[1])
+	if !actions[1].Matches("create", "deployments") {
+		t.Errorf("unexpected action: %v, expected create deployment", actions[1])
 	}
 	expected := "Tiller (the helm server side component) has been installed into your Kubernetes Cluster."
 	if !strings.Contains(buf.String(), expected) {
diff --git a/cmd/helm/installer/install.go b/cmd/helm/installer/install.go
index 12f9b903a..a230faccf 100644
--- a/cmd/helm/installer/install.go
+++ b/cmd/helm/installer/install.go
@@ -17,6 +17,7 @@ limitations under the License.
 package installer // import "k8s.io/helm/cmd/helm/installer"
 
 import (
+	"errors"
 	"io/ioutil"
 
 	"github.com/ghodss/yaml"
@@ -34,10 +35,11 @@ import (
 //
 // Returns an error if the command failed.
 func Install(client internalclientset.Interface, opts *Options) error {
-	if err := createDeployment(client.Extensions(), opts); err != nil {
+	// create service first. If cluster is using hosted Tiller, this will error out and actual deployment will not be created.
+	if err := createService(client.Core(), opts.Namespace); err != nil {
 		return err
 	}
-	if err := createService(client.Core(), opts.Namespace); err != nil {
+	if err := createDeployment(client.Extensions(), opts); err != nil {
 		return err
 	}
 	if opts.tls() {
@@ -89,6 +91,19 @@ func createService(client internalversion.ServicesGetter, namespace string) erro
 	return err
 }
 
+// GetTillerExternalName returns the configured external name of a hosted Tiller server.
+func GetTillerExternalName(client internalclientset.Interface, namespace string) (string, error) {
+	if svc, err := client.Core().Services(namespace).Get("tiller-deploy"); err != nil {
+		return "", err
+	} else if svc.Spec.Type == api.ServiceTypeExternalName {
+		if svc.Spec.ExternalName == "" {
+			return "", errors.New("Missing external name of hosted Tiller")
+		}
+		return svc.Spec.ExternalName, nil
+	}
+	return "", nil
+}
+
 // service gets the service object that installs Tiller.
 func service(namespace string) *api.Service {
 	return generateService(namespace)